how to make sense of insurance-to-value (itv) · how to make sense of insurance-to-value (itv)...
TRANSCRIPT
How to Make Sense of Insurance-to-Value (ITV) Thursday, February 28, 2013, 9:50 a.m.
Todd Rissel Chairman, CEO, Co-founder e2Value, Inc. Stamford, Conn. Todd Rissel is chairman, CEO, and co-founder of e2Value, which is his passion. e2value evolved from an idea to a viable, growing business in less than five years. Working with his business partner, George Moore, Todd moved e2Value from an idea in 1997 to the second-most-used system in 2006. They did this by displacing a competitor that is part of a $4 billion conglomerate and has 80 years of experience and 99 percent of the market. His appraisal knowledge is partially captured in e2Value’s patented Expert Valuation System. His opinions on property valuation, technology, and business metrics can be found in various publications and newspapers around the United States and Canada as well as on Retirement Living TV. Outside of business pursuits, Todd spends his time with his family and serves on various committees for the First Presbyterian Church of New Canaan. He has served on the board of directors for STRIVE of Fairfield County in Connecticut. He also worked with Habitat for Humanity and AmeriCares Homefront as a house and district captain. Other outside interests have included United Way campaigns and helping with local Special Olympics competitions. Session Description: This informative session will provide insight on insurance-to-value (ITV) and why it is a valuable tool for commercial lines underwriters. Todd Rissel, chairman, CEO, and co-founder of e2Value, Inc., will shed light on issues such as the basic principle behind ITV, measuring ITV, and relating values to pricing (rates). Case-study examples will be provided as a learning tool.
Top Three Session Ideas Tools or tips you learned from this session and can apply back at the office.
1. ______________________________________________________________________
2. _______________________________________________________________________
3. ________________________________________________________________________
How to Make Sense of Insurance-to-Value (ITV) Session Outline
Overview
• Objectives • Normal Situation
Use Publicly Available Data to Help How to Find the Correct Basic Data in a Timely Fashion When Not to Find Out if the Number is Good “The Plural of Anecdote is NOT Data!” ** What Number is Correct – or Maybe Valid?
• Sample Results • Sample Search • Example Data Sheet
Can you Trust Data?
• Sample Data Returns • Range of Results • Legacy Issue
The Basic Principle Behind Insurance-To-Value
• Example Property Ratios ITV Could Be an Issue if: Measure ITV Drivers of Replacement Cost – Outside of our Control How can you Test your Book?
• Review Theory to Reality Why Does it Matter? How to Restore a Book
• Why • With Rewards Comes Loyalty
Questions & Answers
How to Make Sense of ITV
Copyright 2012 e2Value, Inc.
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ObjectivesObjectives
• To find a ‘true” measure of ITV
• Understand the difference between anecdote and data
• Develop your own ITV measurement tools
• Be able to measure ITV at static points and ongoing
• How to determine what is “right”?
• Market• Agent• Partial versus total• Total premium• How to build a confidence level with
the numbers
Copyright 2012 e2Value, Inc.
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The Issue: An agent has a 25,000 sq. ft., one-story wine retail space to insure for $1,500,000.
The underwriter checks various databases and files, says she thinks it is a 50,000 sq. ft. building and wants to insure it for $3,000,000.
Over a three-day period emails and calls are exchanged. Each side tries to convert the other to his/her viewpoint or to find data to satisfy his/her supervisor, manager and underwriting guidelines.
A Real Situation That Is Repeated Thousands of Times Daily:A Real Situation That Is Repeated Thousands of Times Daily:
Copyright 2012 e2Value, Inc.
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Use Publicly Available Data To HelpUse Publicly Available Data To Help
Everyone sees the area of debate and can now cooperate
Enter an address and receive back: Building Information Tax Limits Images of the
property and the surrounding area
All parties see the same information
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How To Find The Correct Basic Data in a Timely FashionHow To Find The Correct Basic Data in a Timely Fashion
Receive data and imagery. Don’t debate—cooperate.
Save time, money and effort. Help all parties and help your bottom line.
The answer? It is a 42,000 sq. ft. 1 story and 2 story building with a value of $3,600,000.
Your team just prevented three days of wasted effort and the client was properly protected.
For this one property there are as many opinions of value as there are people involved. Who is right? Who is the closest?
Copyright 2012 e2Value, Inc.
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When NOT To Find Out If The Number Is Good!When NOT To Find Out If The Number Is Good!
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“The Plural of Anecdote Is NOT Data!” **“The Plural of Anecdote Is NOT Data!” **
Replacement Cost is NOT a theory. Models predict the future—such as
weather, habits, voting, buying, etc. Replacement Cost is a knowable fact.
There is nothing to predict. RCV calculators are NOT models.
Seven points of data can be used statistically.
Seven hundred points of data are statistically relevant.
According to Wikipedia: Statistics is the study of the collection, organization, analysis, interpretation, and presentation of data.*
http://www.surveysystem.com/sscalc.htm#two* http://en.wikipedia.org/wiki/Data** Demographer Peter Francese
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Two examples of finding an RCV without an estimator:
1) One World Trade Center, as of January 2012, the tower's estimated cost had risen to $3.8 billion, including rent abatement, land clearing, delays, etc. Actual building only costs are $2,200,000,000.
http://online.wsj.com/article/SB10001424052970203920204577191371172049652.html
2) Rush University Medical Center, “The $654 million, 14-story 830,000 square foot hospital ….”
http://transforming.rush.edu/NewHospital/Pages/default.aspx
What Number Is Correct – or Maybe Valid?What Number Is Correct – or Maybe Valid?
Building Cost Your ITV toolOWTC $2,200,000,000 ?
RUMC $654,000,000 ?
The ResultsThe Results
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Sample ResultsSample Results
Rush University Medical Center
One World Trade Center
Brand XYZBrand ABC Brand 1234567Actual
$ 2,200,000,000 $ 968,000,000 $ 2,210,000,000 $ 1,120,000,000
$ 654,000,000 $ 281,000,000 $ 657,000,000 $ 301,000,000
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Sample SearchSample Search
34 stories, 8,000 sq. ft. per story, 275,000 sq. ft. in total, $581/sq. ft. complete
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What Number Is Correct – or Maybe Valid?What Number Is Correct – or Maybe Valid?
$-
$50.00
$100.00
$150.00
$200.00
$250.00
1 2 3 4 5 $-
$50.00
$100.00
$150.00
$200.00
1 2 3 4 5 6
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Property Location
Published Independent
Value
% Variance To Published
Value
Actual Error Rate for a
Carrier
Carriers' Value
% Variance To Actual
Value
Actual Error Rate for a
Carrier
Desired Value
Nebraska $133,000 123% 0% $150,000 113% -10% $163,000
Colorado $697,000 114% 0% $493,000 62% -30% $797,000
California $1,105,000 100% 0% $755,000 68% -32% $1,108,000
Pennsylvania $1,311,000 104% 0% $715,000 55% -45% $1,364,000
Florida $9,850,000 102% 0% $3,349,000 34% -66% $10,082,000
Variance Goal for the Sample 107% Actual Error Rate 0% 66% Actual Error
Rate -38%
Example Data SheetExample Data Sheet
Copyright 2012 e2Value, Inc.
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Can You Trust Data?Can You Trust Data?
Revenues$4.0 billion$850 million$1.0 billion$1.6 billion$3.6 billion$2.5 billion
Six firms with $13.6 billion in revenue focus on data collection and monetization.
Meaning: They sell data for cash.
There is an entire world of vendors selling it—scrubbing is their “magic”.
Some vendors that you may be familiar with or may use:
CoreLogicDataQuickFirst AmericanLexis-NexisLPS
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2011 – Wisconsin – 75% Hit rate2005 – Wisconsin – 5,000 Properties in chosen locations, 0 hits
2011 – West Virginia – Target hit rate 40% - hit 45% 2008 – West Virginia – Target hit rate 25% - hit 30%
2011 – Central Iowa – Hit rate – 96% 2010 – Central Iowa – Hit rate – 80%
Sample Data ReturnsSample Data Returns
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If All That Data Is Available Today, Why Is There Such A Range of Results? If All That Data Is Available Today, Why Is There Such A Range of Results?
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The Legacy IssueThe Legacy Issue
• Some systems move from individual components to completed structure
• Information has been gathered and processed this way since the 1950s
• It’s 2013—maybe the models need to change?
• Using technology, you can move past the outdated models
• Are those models Apple or RCA?
• If you use RCA, do your results make you an Apple or an RCA?
Copyright 2012 e2Value, Inc.
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The Basic Principle Behind Insurance-To-ValueThe Basic Principle Behind Insurance-To-Value
Property A and Property B are the same size, have the same features and have the same replacement cost. Property A is insured for 80% of the full replacement value and Property B 100% of the full replacement value.
Most losses are small loses. If each property had a $2,500 covered loss and each policy had a $500 deductible, the following is the result.
After 5 years, insuring Property A results in a gross loss of $125.00 and insuring Property B results in a gross profit of $343.75.
The total gross cost of underinsurance is $468.75.
Property ACoverage $150,000Premium $375.00Insured for 5 years
Total Earned Premium $1,875.00
Property BCoverage $187,500Premium $468.75Insured for 5 years
Total Earned Premium $2,343.75
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Example Property RatiosExample Property Ratios
Combined Ratios 2010 2009 2008 5 Year
Company A 105 102 109 101
Company B 98 97 101 98
Copyright 2012 e2Value, Inc.
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ITV Could Be An Issue If:ITV Could Be An Issue If:
• The trend is toward higher loss/combined ratios
• The most recent years are above the five year average
• Non-Cat ratios follow the same pattern
• There is no influx of new business through purchases, steady or consistent growth, no major rate initiatives
• “Pink Slips” from Claims
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Measure ITVMeasure ITV
• What is your book profile?
• Age of information
• Type of materials
• Age of structures
• Updates
• Sq. Ft.
• Wrote the property in 2004
• Where is ITV five, six or more years later?
• What Inflation Guard did you use?
• What has been added to the book over an eight year period?
Copyright 2012 e2Value, Inc.
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Drivers of Replacement Cost – Outside of Our ControlDrivers of Replacement Cost – Outside of Our Control
Gold price over the last five years from goldprice.org
Oil price over the last five years from oil-price.net
Copper price example – from
basemetals.com
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TestTest
• How Can You Test Your Book?Review your book for an average value, then look at a random group created by selecting, for example, 15 average, 15 at the low end and 15 at the high end. Choose a mix of locations and ages, if possible.
Have them surveyed or find out the size, materials and age.
Send the list to several loss control vendors and ITV providers, then average those amounts.
Use public data sources.
Send the list to your claims department for them to check costs with their builders.
Use image software to view the structure (Bing, Google Earth, etc.).
Look across those averages and compare to your “insured” values.
Is there a pattern?
Do the images match the profiles?
Does it make sense?
Does it pass the sniff test?
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ReviewReview
• The “average” structure in a class should be close to the coverage. If not, there may be an issue.
• The “ends” may a little off but those numbers, too, should follow the average.
• If the coverage for a structure is more than the “test” don’t relax. High coverage may cause a
customer to look elsewhere for a better deal.
• Further, does your data match the “public” data—the data that you found through research? If not, the value may be a side issue.
Copyright 2012 e2Value, Inc.
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Theory to RealityTheory to Reality
Theoretical min, max and mean/average distribution
curve versus the actual distribution curve
found in the “Real World”
Reality of a Sales Sample
The real world has more low cost items than high cost items. A
typical book should reflect the Real World Distribution.
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Mathematical Distribution Curve
Real World Distribution
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Why Does It Matter?Why Does It Matter?
Value Adequacy = Premium Adequacy =Better Base Rates = Satisfactory Loss Settlements for Customers, Agents and Underwriters = Increased Customer Satisfaction = Increased Customer Retention = More Referrals = Increased Agent Production= Revenue Growth and Increased Profits
There are enhanced long-term results for all the parties: The insurance company, the agents and the consumer
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How To Restore A BookHow To Restore A Book
Recommended Steps:• Engage the agents• Engage the customers• Use internal examples to
“sell” the real world impact it has had or can have
• Match the rewards to the goals
• Make five-, three- and one-year plans
• Stick with it
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This Is WhyThis Is Why
YOUR REWARD?• $$—billions of dollars! • More satisfied customers • Long-term sustainability and viability
Look at NAMIC membership—long-term, viable, stable. Those core values are essential to who you are and speak to the rewards of an ITV strategy.
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With Rewards Comes Loyalty:With Rewards Comes Loyalty:
Dear [insert your company name here]: Excellent tool! I have struggled with building values for most of my 36 year career. I appreciate this approach because it includes agent involvement in the process. Judgments as to quality, etc. are so germane to the estimate, and many “SF=value” approaches minimize that fact.
Building additions and/or subtractions are common today so “boots on the ground” are still needed to best serve our clients. You stressed that fact in your presentations for both personal lines and commercial lines and I want you to know that it is what many of us “old school” agents are looking for. We need realistic tools to help us reach the best information for our clients and companies. We do not need a magical wand to wave over the application from our office chair.
So again, thanks for a great tool for us to use.
Cordially,“Old School” Agent
Copyright 2012 e2Value, Inc.
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